Hain Is A Natural Acquirer In Food Biz Amid Profits

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Hain Celestial Group had plenty of cause to uncork the champagne when the natural and organic foods powerhouse celebrated its 20th anniversary Nov. 21.

Hain ( HAIN ) had just logged its 14th straight quarter of double-digit profit growth two weeks before. And if Wall Street is on target, that trend will continue. Analysts surveyed by Thomson Reuters see full-year fiscal 2014 profit rising 20% to $3.03 a share and a 15% increase in fiscal 2015.

Hain is a top maker of natural and organic food and personal care products in North America and Europe. Its brands include Celestial Seasonings teas, Terra Chips, Health Valley soups and cereal bars, and Earth's Best baby food.

Hain has kept sales and profits fat through a steady diet of acquisitions combined with ongoing product and distribution expansion that have helped it build muscle in the fast-growing natural and organic foods arena.

On the acquisition front, Hain has made two recent buys that analysts see as bringing a lot to the table.

In December it closed on the purchase of the BluePrint brand, a top player in the raw-juice category.

BluePrint makes raw, organic cold-pressed fruit and vegetable juices and juice beverages. The line includes BluePrintCleanse, a raw-juice cleanse program designed to help detoxify the body; and BluePrintJuice, a line of juice beverages.

The brand posted about $20 million in sales in 2012 and is expected to be accretive to Hain's earnings in 2013.

Expanding Categories

The deal, for an undisclosed amount, took Hain into a category that holds a lot of opportunities, the company says.

"We see great potential with the BluePrint brand as consumers increasingly seek the benefits of the nutrients, enzymes and fresh taste of raw juice," said Hain founder and CEO Irwin Simon in a statement. "BluePrint, a market leading brand that offers innovative products and programs, provides Hain Celestial with the opportunity for expansion into the premium raw-juice category."

What is the brand's potential for growth?

"They purchased BluePrint when it was doing approximately $20 million in sales," said Piper Jaffray analyst Sean Naughton. "It's very fair to say Hain has demonstrated a track record of acquiring $10 million to $20 million brands and taking them to $100 million to $150 million in annual revenue."

Canaccord Genuity analyst Scott Van Winkle calls the BluePrint deal a "promising and timely acquisition."

"BluePrint is in the premium juice business and one of the hotter trends is premium juice cleansing in weight loss," he said. "And BluePrint is a real strong brand in premium juices in the Northeast."

Consumers are interested in consuming more vegetables, adds Naughton, and BluePrint offers them a way to do that.

A more recent buy came in May with the acquisition of United Kingdom-based Ella's Kitchen Group for an undisclosed amount. With the buy, Hain formed the Global Infant, Toddler & Kids Division under Hain Celestial U.S.

Ella's Kitchen is a maker of premium organic baby food under its namesake brand and the first company to offer baby food in convenient flexible pouches. It offers a range of 80 branded organic baby food products principally in the U.K., the U.S.and Scandinavia.

Ella's Kitchen generated about $70 million in sales in 2012 and is expected to be accretive to Hain's earnings in the current fiscal year 2014 by 5 to 8 cents a share.

The buy complements Hain's Earth's Best line of infant, toddler and kids products. The Earth's Best brand has grown from $15 million in sales in 1999 to more than $150 million today. The brand offers the first and only full line of organic baby food products with a variety of offerings from jars and pouches to meals and frozen products, the company says.

"Ella's Kitchen is a very strong organic baby food brand," said Naughton.

With Ella's Kitchen in the mix -- in addition to Earth's Best -- Hain now has two of the "dominant" brands in the organic baby food category, says Naughton. There's a "significant amount" of distribution opportunities with Ella's Kitchen, he says, adding that Ella's Kitchen has just expanded intoWal-Mart Stores ( WMT ).

Hain is also rolling out Ella's Kitchen into natural food stores in continental Europe with a European sales team, Simon said on the first-quarter conference call.

"That whole category is quite interesting," Naughton said.

He sees expansion opportunities with the two brands beyond baby food as infants currently using the brands grow older.

He also sees manufacturing synergies between the Earth's Best and Ella's Kitchen brands.

Both the Ella's Kitchen and BluePrint acquisitions are faring well.

"Q1 saw our BluePrint and Ella's Kitchen acquisitions combined to meet both their top- and bottom-line budgets," said Simon on the conference call. "Importantly, both businesses had strong consumption growth and expanded distribution. Ella's Kitchen launched into a large U.S. mass merchandiser and a leading toy retailer, while BluePrint expanded distribution into test markets of some leading grocery accounts."

American Health Kick

One key driver of Hain's sales and earnings growth has been "really robust" internal growth in the U.S., says Van Winkle.

"Hain has been enjoying a very good industry backdrop," he said. "Natural and organic food industry sales growth has been exceeding 10% this year in the U.S, and Hain has been keeping pace with that growth."

Van Winkle estimates internal growth in the U.S. for Hain has run at about 10% year-to-date.

But international growth has also been a driver, he says.

A significant piece of earnings growth over the past two years is from last year's acquisitions of Premier Foods and Daniels Group in the U.K., he says.

Hain acquired Britain's Premier Foods' portfolio of jams and spreads in a stock and cash deal valued at roughly $320 million last year. Premier has market-leading packaged grocery brands, such as Hartley's jams and Sun-Pat peanut butter.

Also last year, it acquired Daniels Group, a marketer and manufacturer of chilled natural foods in the U.K. Hain paid $230 million in cash plus an unspecified earn-out for the Leeds, England-based company.

Naughton upgraded Hain to overweight from neutral in October.

The reason: "We felt that the channel agnostic growth profile in this industry is very attractive and that Hain is improving its operating margin, which gives us confidence the investments they've made are really starting to gain traction."

Hain is the 13th largest company by market capitalization in IBD's Food-Packaged industry group, which is dominated byNestle ( NSRGY ) andPepsico ( PEP ). Hain is its biggest name focused on natural products and has a market cap of about $3.9 billion, far above the next largest health food specialistsAnnie's ( BNNY ) andAmira Nature Foods (ANFI) .

Overall, Hain is faring handsomely on the financial front. In the most recent quarter, its fiscal 2014 first, earnings climbed 27% to 52 cents a share. Sales surged 33% to $477.5 million.

As for future buys: "I always expect acquisitions from this company," said Naughton. "They've done 11 since June 2010.

"I would like to see them continue to expand in the U.S. with brands here. I think there's a ton of runway opportunity in the domestic market for the category."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: BNNY , HAIN , NSRGY , PEP , WMT

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